The IMF is back under pressure from China

Ukraine, Ghana, Tunisia, Egypt, Tanzania, Cameroon, Pakistan… IMF teams have donned their firefighter costumes again in recent months. $250 billion is currently lent to the Fund. ” There has been a sharp increase in outstanding IMF credit. Almost half of the IMF’s member states, that is 93 out of 190, borrow money from it »said economist Patrick Lenain, author of the book on education The IMF.

His return to the front of the stage is surprising because the institution has been attacked by criticism for the past two decades. In Mediterranean Europe, of course, where the potions prescribed by the IMF to the Greeks, Portuguese and Spaniards to restore their public finances left a bitter taste in the population and the political class. In the countries of the South too, for whom the institution is a scarecrow. So the former president Cristina Kirchner promised in 2007 an Argentina where Children do not know what the IMF is ».

In fact, no country decides to contact the IMF lightly. This last method is experienced as an admission of powerlessness when the public coffers are empty. ” Among these states, there are failed states » (failed states) such as some countries in sub-Saharan Africa. But also countries that have done well and have been hit by a shock like Covid or the rise in raw materials », analyzes Gérard-Marie Henry, teacher-researcher at the University of Reims Champagne-Ardenne and former World Bank consultant. The economist sees in the context of the crises added to the crises the main explanation for the return of the IMF.

Fewer loan conditions

If the Fund is available at all, it is also because it lowers the requirements. Now, it’s easier to lend to faster. Created in 1944 during the Bretton Woods conference, the organization functions as a common fund. The member countries contribute to it according to their level of development and the countries in difficulty borrow from it. Under certain conditions. For a long time, access to these funds is conditional on good commitments to manage the economy of the deficit, inflation or the cessation of public subsidies.

The IMF gradually abandoned the logic of aid conditionality. In the past, he paid the aid in installments to ensure that the promises made by the States were respected. », Georges-Marie Henry recalled. Today, the IMF favors the speed of loans to avoid default. This would have been unimaginable twenty years ago. There has been a big shift since the Greek crisis in 2011 »he confirmed.

The economic disaster suffered by Athens after the austerity remedy demanded by the “troika” (IMF-ECB-European Commission) marked an indelible stain on the reputation of the IMF, which successive directors sought to redeem. Rarely, in 2013, general manager Christine Lagarde admitted that ” the impact of austerity plans on growth is stronger than we expected 3-4 years ago. It was a miscalculation ». The others my fault in 2014 in an IMF internal audit. Made public, the document is highly critical of the cocktail of measures imposed on Greece, especially the brutality of budget cuts that have harmed growth, public services…

The Failure of the “Washington Consensus”

As a symbol, the Greek case crystallized the scorn that had been leveled at the IMF for a long time by leading economists such as Joseph Stiglitz. In 2003, the 2001 Nobel Prize in Economics listed the Fund’s repeated mistakes in his essay The big disappointment ». The famous Stiglitz attacked “structural adjustment programs” (SAP), these liberal-inspired reforms (privatization, deregulation, cuts in public spending) demanded from countries in return for a loan .

In fact, the dogmatic application of these measures, which was fashionable among economists and American leaders in the 1980s that we are talking about the “Washington consensus”, has often proven inappropriate and counterproductive to those concerned. economy. As happened in Greece. The dubious effectiveness of its recipes forced the IMF in a form of moderation and above all to moderate its demands.

The Sino-American rivalry has nothing to do with the IMF’s sudden generosity. Far from stopping the economic failures of the institution, Stiglitz has criticized the way in which the IMF is used as a geopolitical weapon by the American administration (located a few hundred meters from the IMF in the center of Washington DC) in the end. in the 20th century and the beginning of the 21st century. First contributor, the United States has a de facto right to veto the Fund’s decisions.

China sits on the IMF and the competition

New voting reforms in 2008 and 2010 reduced America’s voting rights in the IMF from 16.7% to 16.5%…and only increased China’s voting rights from 3.8 to 6.1%. These crumbs do not satisfy Beijing’s appetite for power, which is now developing its own line of credit for poor countries.

While sitting in the IMF, China invests in other international financial organizations where it is not hindered by its American rival. Like the Asian Infrastructure Investment Bank (AIIB) which was launched in 2014 at the initiative of China and has been pushed to the rank of competitor of the IMF. Beijing is clearly not lending out of charity and the contracted credits could strangle the borrowing countries. Choked by China’s unimaginable debts, Sri Lanka has experienced this.

What has changed now is the ability to borrow from China. The IMF is less demanding and more generous to prevent poor countries from turning to China », observed economist Gérard-Marie Henry. Gone are the days when the IMF was the world’s only lender of last resort.